As Tesco and Carrefour bid one another adieu, Retail Week analyses why the alliance failed and what it means for international partnerships more widely
When Tesco and Carrefour struck their grand, cross-channel alliance in the summer of 2018, the two retail giants played up the possibilities the buying partnership would offer.
The two promised their union would “improve the quality and choice of products available to customers, at even lower prices thereby enhancing their competitiveness” and “allow both companies to strengthen their relationships with their suppliers and create significant opportunities for those suppliers”.
For all the fanfare associated when the accord was struck, its termination this week, only three years later, was rather more subdued.
While the pair said the deal had yielded “a number of joint buying opportunities”, both decided it was better to go it alone.
“Both companies have agreed that they will continue this work independently and focus on their own opportunities, building on the experience and the progress made during the alliance period,” the two grocers said in a joint statement.
Destined to fail?
The process of decoupling the two buying arms will take another six months. The alliance officially comes to an end on December 31, a year to the day that the UK officially separated itself from the EU.
However, both retail giants denied that Brexit had played any role in the dissolution of the partnership.
So why then did this partnership, which promised so much at the beginning, ultimately fail?
For Shore Capital head of research Clive Black, the tie-up was poorly conceived from the start.
“At the time of the announcement of the Carrefour-Tesco alliance, we questioned whether or not we would ever be able to identify any benefit in either group’s financial statements, and we think the answer is clear,” he says.
“Tesco and Carrefour may be tempted to try the same game with a new partner”
Cédric Ducrocq, Diamart Connect
Shopfloor Insights founder Bryan Roberts says the partnership would have struggled with pushback from suppliers as well.
“The only time these kinds of partnerships work is for non-resellables – teaming up to buy trolleys, tills, or shelving. The boring stuff that you need to run stores and doesn’t involve FMCG suppliers.
“Once FMCG suppliers are involved it becomes a spreadsheet sharing exercise. You add international borders to that and it gets even more complex. You’ve got problems with different brands, different pack sizes, different labels, different regulations, so you can’t literally buy the same things often. Then the suppliers will basically refuse to be bullied.”
President of French retail analysis house Diamart Connect, Cédric Ducrocq, believes the partnership may have come to an end because the two retailers had got everything out of it that they could.
“You usually get significant extra purchasing conditions during the first two years by aligning companies but after two or three years, you have taken the most of it,” he says. “Tesco and Carrefour may be tempted to try the same game with a new partner”.
Red tape and regulators
Regulatory oversight also played a role in ending the partnership. While France’s competition watchdog, the Autorité de la Concurrence, sanctioned the initial tie-up, any deepening of the relationship between the two retailers would have been met with resistance.
“The French competitions body has taken a very prescriptive stance of late. If Tesco and Carrefour had wanted to look at anything more meaningful, it would have run up against the watchdog,” says Black.
While both retailers have said Brexit did not end the partnership, there is no doubt that the added red tape will have driven up costs and slashed margins, particularly on haulage across borders.
Only yesterday, Retail Week revealed Tesco had begun the process of winding down its international wholesale arm – further proof of its focus on the UK.
“Cross-border haulage is not a fun game to be in at the moment,” says Roberts. “That makes the already thin economics of export wholesaling even thinner. There are probably more important things to be devoting cost and headcount to [than the partnership]”.
Greater regulatory oversight, the increasing power of suppliers and Brexit all took their toll on the partnership. The question for other businesses is if giants like Tesco and Carrefour cannot make a buying alliance work, can anyone?
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